CUSTOMER VALUE HIERARCHY

Let’s get a bit academic. According to Karl Albrecht, a leading thinker in the services marketing area, customer value is best thought of as a hierarchy. This hierarchy is going to determine the perceived value of a certain product or service in terms of what the consumer expects and does not expect from the purchase experience. I will use a hotel as an example to explain each level of customer value.

1.       Basic customer value

It encompass all the requirements of doing business. In other words, it is the fundamental component of your value proposition to be in business. At the basic level, a company provides essential core attributes that customers need. If this basic level is not provided, customers will not buy the product. However delivering it will not generate competitiveness in the market.

In our hotel example, a clean bed is part of the basic value that the company can offer.

2.       Expected customer value

At this level the company provides attributes that customers take for granted. A company providing attributes at the expected level is only providing an average standard service; there is nothing better about the service offer compared to the competition. Customers may only be moderately satisfied, and there is no incentive to return or recommend this company.

Expected attributes of a mid-scale hotel might be an efficient check-in or availability of a bar/restaurant.

3.       Desired customer value

Involves what the customer would like to have from the purchase and service experience. According to Destination Marketing's website, desired value presents the first opportunity for a small business to move ahead of competitors by giving the customer desirable add-on features to the purchase and service experience. Companies providing the desirable offer are competing more effectively than most of their competitors.

The friendliness of the staff, the quality of the food and the efficiency of the service are examples of attributes that customers know, but do not always expect.

4.       Unanticipated customer value

At the unanticipated level companies offer customers ‘delightful and surprising’ attributes that demonstrate outstanding service quality. These features can help a small business win consumer loyalty over the competition and generate repeat sales over time. Companies operating at the unanticipated level can be said to delight their customers with memorable experiences, and are achieving a significant advantage over their competitors. The difficulty with providing unanticipated levels of service all the time is that customers begin to expect these delightful surprises, and competitors copy them.

Examples might include imaginative decor and fittings, staff who perform exceptional service, or cuisine with unforgettable taste sensations.  

As we can see the marketing implication should go beyond the basics and expectations and strive to offer truly superior customer value by providing desired or unanticipated values.

Albrecht, K., 1994. Customer value, Executive Excellence. Sept. pp. 14-15.

PROVIDING EVIDENCE OF YOUR CUSTOMER VALUE

We understand how important is to deliver high customer value but this will mean nothing if our customers are not aware of it. A critical factor is being able to prove your value. Potential customers require evidence of your capability and value. As stated by Barnes et al (2009) in a “world made cynical by hype, your word is simply not enough”.

It is essential to provide a reason to choose you through credible evidence to prove your claims. The authors propose the following tools; case studies, write a book and become a thought leader, develop articles or use on- and off-line, publish customer testimonials and a value calculator. This last point relates to the need to adopt formal measurement techniques to measure and track the impact of your value proposition.

British Airways represents a good example of how a company can create a value calculator to materialise customer value. They are using EasyJet and Ryanair to demonstrate how BA’s customer value is higher than their competitors. This tool enable users to select how they are choosing to travel; checking at the airport or online, selection seat 24 hours before they fly, taking a bag or even opting for food and drinks on board. Once all the options are selected it will calculate what Ryanair, EasyJet and BA will charge for those options.

The objective of the calculator is to highlight the customer value delivered by BA in comparison to what their closest competitors are offering for a higher price. BA head of UK and Ireland sales Richard Tams said: ‘Some no-frills carriers charge for a range of ‘extras’ that we consider to be part of our core service, from checking in a bag to food and drinks on board. On a round trip customers can be paying up to £375 on Ryanair and £79 on EasyJet for these ‘extras’ in addition to their fare. The no frills airlines claim they’re always cheaper. Our calculator shows they are not.’

As we can see, providing evidence of your value is critical for your ongoing success. Any company must decide which measures to use and implement them, communicating the results to help them growing sales and keep the business focused on value.

Barnes C., Blake H. and Pinder D., 2009. Creating & delivering your value proposition: managing customer experience for profit. London. Kogan Page.

CUSTOMER VALUE: RESIDES ON COMPANIES OR ON CUSTOMERS?

So far, I have analysed customer value as a group of characteristics attached to a company’s offering. It looks like the company can play with them to increase customer value. From my point of view, I wonder whether customer value is in the company’s hands. It seems to me that customers have the power to decide whether a company is delivering customer value or not depending on what they value the most.

The Customer and Leadership Blog, states that value does not reside in the product or service a company offer. Value is in customer’s mind. Each individual will perceive it in a different way. For example, a supermarket introducing home delivery service, will be much appreciated by a housebound customer than someone who enjoys visiting the establishment.

Well… Let’s say that customer value is in customer’s hands. Now we need to distinguish what kind of elements create customer value. Continuing with the previous blog, they describe 5 elements in customer value:

1.       Benefit.

The closer you offer is to the perfect solution for the job and the desired outcomes, the more benefit it deliver and the more value you create for your customer. As we have said above, each customer will have a different perceptions of customer value. To manage this situation it is important to detect different segments among the customer base.

2.       Effort

This element goes beyond the product benefits and focus on the ease and convenience of using a certain product. It is essential that the company pays attention to more than just product and service, in this case, we are talking about distribution channels and the whole usage process of the product as a key to increase customer value.

As stated by Fifield “Generally, there will be greater customer value attached to those offerings, where the organisation has spent time, research, effort and insight into finding new ways of making the old jobs easier”.

3.       Risk

The perceived value will be diminished when a great level of risk is attached to a certain product. The perceived risk is much higher when the customer has a lack of knowledge and prior experience in how best to get his job done.  And in particular how to judge the expertise of the supplier and the quality of the offer. Since we are risk averse, it is in the company’s hand to minimize this element.

4.       Price

Undoubtedly this is the most complex component of the customer value equation. There are innumerable variables to take into account when determining the price of a product or service. It is not a simple formula and depending on the price we decide for our product it will have multiple connotations. For example, we may think that a cheap product is always better from a customer’s point of view but they may link this with a low quality and prefer to buy something more expensive.

5.       Treatment

The last element of perceived customer value makes reference to service. Customers will always prefer to do business with organizations that leave them feeling “valued”.  Again we see how important customer service is.

CUSTOMER SERVICE TO INCREASE CUSTOMER VALUE: BEST PRACTICE EXAMPLES

Customer service is another source of competitive differentiation for businesses and therefore, it should be enhanced to increase customer value. Consumers have access to an increasing number of customer service touchpoints; traditional telephone support, email, digital channels like live chat, social media and mobile. 

Delivering good customer service does not necessarily come cheap but as stated by eMarketer, consumers have demonstrated they are willing to pay more if a retailer acts in their best interest, helps them to get more value out of the products they purchase, creates convenient new ways to shop, and let them know when to expect delivery of an order.

As stated by SkillsYouNeed, we tend to remember positive and negative experiences more vividly than average day-to-day ones. It is essential to make every customer’s experience a positive one that they’ll remember and talk to others about. Nothing is more powerful than going out of your way to give a customer something that they were not expecting or anticipating from you. Every contact between customer and company is a new opportunity to create an unforgettable experience.

It is important to know which are the preferred touchpoints and improve them to deliver the best customer service. According to a study from eDigital’s Customer Service Benchmark, from all the customer service touchpoints available within a company, live chat has the highest satisfaction levels (73%), followed by email (61%) and app (53%). SMS (41%) and phone (44%) can be found at the bottom of this list. 

Given that customers appreciate it, and it has shown to be helpful as a sales driver, I can see the use of live chat becoming more popular in order to increase customer value.

As we can see, those companies that understand how to use the latest digital channels to help customers will be rewarded with loyal customers who spend more and advocate for the brand. No matter the size of your business, if you wish to increase customer value, it is important to provide good customer service to all types of customers, including potential, new and existing customers.

HOW CAN WE KNOW WHAT IS VALUABLE FOR OUR CUSTOMERS?

One of the most extended mistakes from a company’s point of view is to communicate a set of attributes linked to the commercialized product without researching whether their customers value those attributes or not. 

Understanding what they value seems to be the first step in delivering customer value. A company may think that its offering has a very attractive value to the consumer but they don’t perceive it like that. In this case, all their efforts will not produce a positive response from the consumer point of view. It is important to know the consumer profile and what characteristics are more valuable for them. As stated by the Marketing Donut, understanding customers is the key to giving them good service and therefore, deliver better customer value. They identify three main ways to better understand customers:

1.       Put yourself in your customer’s shoes.

This point requires to take a hard look at the main touchpoints between customers and your company. Customers expect you to deliver what has been promised but also surpass their expectations. Being able to do so will increase customer value and therefore word-of-mouth recommendations.

2.       Collect and analyse data.

Understanding comes from constant refinement of data. A company’s database holds valuable information about customers that will enable to understand and anticipate their needs. CRM systems can help to identify customers’ needs by analysing their behaviour and preferences.

3.       Ask them what they think.

Not everyone complains, instead, they will tell their friends about their bad experience. It is essential to act proactively to discover what you are doing wrong. Conducting a customer satisfaction survey to gain valuable insights. It is important to tell them what the company has changed as a result of their feedback, it will make them feel valued.

To make things worse, knowing what your customers value the most is not enough, suppliers must have the capability to anticipate what customers will value in the future because it is constantly changing. The American Marketing Association identifies the following methods to anticipate customer's needs within a company’s offering:

1.       Direct measurement of needs and benefits: A survey research is conducted with large batteries of items, such as explicit indicators of current and future needs. Customers can be divided into groups according to the similarity of their profile of needs.

2.       Problem detection: Since it is easier that customers say what’s wrong with a company rather than what they want, this technique measures problems experienced instead of needs themselves.

3.       Information acceleration: This method tries to bring the future into the present. To understand customer response to a future environment they stimulate this alternative environment and measure response to them.

4.       Historic trend analysis/forecasting the future: Using knowledge of the past to bear to infer in the future. It uses customer behaviour of the past to build future business designs. The problem is that customers not always behave in the same way.

5.       Lead user analysis: They assume future reactions looking at people whose behaviour appears to be leading indicators of the future customers.



Okay, now that we know that customer value is constantly changing, what can a company do to overcome this situation? It looks like the solution is INNOVATION.

Customer Think presents innovation as a “New” Value Creation tool, it is described as a crucial process for any company to survive in a competitive market. To be truly innovative, the invention needs to create economic value, and it can be done in the following ways:

• Adding a new feature to a product (value = increase sales)
• Improving process to reduce waste (value = reduced costs)
• Creating a new product (value = penetrate new markets)

Until now, everything seems to be in the company’s hands, but I will analyse different sources to discover whether customer value resides on companies or customers.

WELCOME TO THE BLOG!

As an MSc Marketing student, I have created this blog to help me develop my understanding on a certain marketing management topic. I will critically analyse the importance of customer value, supporting my arguments on best practice trends.

As a customer I make purchase decisions based on how valuable I perceive the product or service in relation to the price I will have to pay for it. This means that the company who is delivering a higher customer value will get a higher market share.

I am really interested in analysing how this concept is currently driving the marketplace. In order to be competitive it seems crucial to deliver the highest customer value, but is it up to company? Or is the customer determining the level of customer value from a product or service? I haven´t got an answer for it yet…

This project will be focused on achieving the following learning objectives:
1. Understand the concept of customer value: how to create it and how to measure it.

2. Find best practice examples to deliver higher customer value.

3. To understand until what extent customer value is on the company´s hand

 I will use this e-portfolio to show my progress in this learning journey.